New Jersey: from the Garden state to the Gambling state

new-jersey-garden-state-gambling-stateThere has been much debate of late in terms of how the garden state might be the litmus test and provide a roadmap for the future of gambling in the US.

It is an understandable perspective for a number of reasons. New Jersey’s first foray into online gambling is already wider than that of Nevada; it is the first regulated internal market with both an existing acceptance of gambling via Atlantic City, and a population sufficiently large to provide the critical mass of players required to support liquidity and sustain long-term growth and profit; the state’s long term ambitions, personified by Senator Lesniak’s proposed bill, suggest that New Jersey is about to define itself from the Garden state to the global Gambling state; and lastly, but by no means least, Governor Christie, the man responsible for all of this is, firstly a Republican and secondly seen as a contender for the White House in 2016, and those stars aligning, surely provide the best bet yet for an all-signing, all-dancing federal gambling bill?

2016 is some way off yet however, and as we know, a week is a long time in politics and, indeed, gambling, as Full Tilt, Poker Stars and Party will, do doubt agree. So let’s go back to the here and now, focusing only on the state, and see whether New Jersey really can provide a glimpse into the future.

Firstly, the US is a group of individual national states, operating under a higher federal umbrella -just like in fact, the EU – and that may provide a better starting point when looking at how much of an influencer New Jersey might be.

The road to regulation in Europe has been on a state by state basis – some states embracing all forms of gambling, others partially, some preferring a state monopoly, some standing firmly against gambling, some promoting themselves as a European gambling hub, aiming to set the standard and lead the way, and some discussion about liquidity and cross-border and ‘overseas’ player acceptance.

Each nation state is doing it its way. Italy, France, Spain and Denmark share some regulatory similarities but have all done it their way based upon what they consider best for them. Sweden operates a monopoly, Germany may operate a semi closed market – the UK is looking to embrace the tax element but via a different model again. And so, one presumes, it will be with the US. Whilst New Jersey has a model which suits, based upon its needs and ambitions, those of other states will be dictated by their specific nuances and needs, which may not be the same as New Jersey.

Secondly, New Jersey has a large population and it has Atlantic City, so in theory a tailor-made customer base willing to accept gambling. Maybe – maybe not. Thus far New Jersey’s gambling has been driven by land-based casinos, but new casino resorts in neighbouring states such as New York and Pennsylvania have seen Atlantic City’s fortunes fade over the last few years. This suggests two possible negatives for online – New Jersey residents are not that into gambling, with Atlantic City’s initial success driven by our of state-rs, or New Jersey residents who live near the state line prefer a casino closer to them – this might be a positive except for the fact that geo-location blocking currently seems to be an issue for those living on the border-line. The positive is that New Jersey-ites like gambling (they voted for it) but are not inclined travel any significant distance for the pleasure – but will embrace the convenience of online. Only time will tell, but if the numbers do not deliver then that will be another mark.

Thirdly, Senator Lesniak’s proposed bill which seeks to make New Jersey the global hub of online gambling, is fraught with as many negatives as positives. The positives are New Jersey placing a stake in the ground and declaring itself the Gambling state and stealing Nevada’s reputational thunder, and the benefits to the economy, such as revenue and job creation, which attracting new business will invariably bring. The negatives however, make the realisation of this dream incredibly challenging, and again we can look to Europe for lessons.

Gibraltar, Alderney, Isle of Man, etc. have already been down this road and are seen as European and arguably international gambling hubs. Companies can set up there and offer their gambling services internationally from a highly regulated, highly reputable jurisdiction – unless a target market regulates and applies IP blocking, which is happening increasingly around the world; requires a gambling operation to be established in state, in which case why would you maintain an out of state operation as well; applies tax locally, in which case why would an operator wish to pay tax twice?

Under such circumstances, New Jersey would have to apply a reduced or zero tax approach to operators based in state but offering services to external customers in order to compete with existing zero tax regimes, and secondly take a ‘blind-eye’ approach to operators ‘exploiting’ loop-holes or sitting outside of the law. E.g. an operator based in New Jersey but accepting bets from Hong Kong, China, Europe, or even New York.

In order to realise its ambitions, this would mean New Jersey either having to undertake significantly greater monitoring, almost as a de facto international regulator, which would mean restricting revenue, or becoming an ‘Antigua’, backing itself but at the risk of a reputational hit which could alienate neighbours and impact on intra-state bi-lateral agreements.

And there is of course, nothing stopping any other US state from deciding to do the same as New Jersey – Nevada with its gambling pedigree being an obvious contender.

And let’s not forget the final possibility. Given that none of the above is secret knowledge, and the fact that New Jersey has always been interested in sports, the real purpose of the proposed bill might just be to find a way to allow operators to be able to offer sports-bettingunder new regulation which bypasses existing hurdles, until such time as Christie hits the White House.

Christina Thakor-Rankin is Principal Consultant at 1710 Gaming, working with start-ups, evolving and established operators, regulators and industry groups internationally. www.1710gaming.comIf you wish to submit your own editorial please contact Bill Beatty.